Deferred payment scheme redux

By Michael Lim

/ The Edge Property |

June 24, 2016 4:00 AM SGT

Property developers have learnt that offering discounts alone may not necessarily lure buyers in a big way. Something more drastic is needed in the current market, especially with the property cooling measures still in force. What seems to be popular now is the deferred payment scheme (DPS).

Listed property group OUE Ltd was the first to roll out its DPS at OUE Twin Peaks two months ago. It has succeeded in clearing all except a dozen units in one of the 231-unit twin towers. That has stirred interest from funds and other bulk buyers in its second tower. Given the success of the scheme, other developers have followed suit with their own version of the plan.

On June 13, CapitaLand launched its “Stay-then-Pay” programme for two of its existing projects, namely the 1,715-unit d’Leedon and the 1,040-unit The Interlace. Under the programme, buyers are given a 15% discount and a deferred payment scheme, where Singaporean and Permanent Residents need to pay only a 10% down payment and the remaining 90% a year later. Meanwhile, foreign buyers pay a 15% down payment and 85% a year later. This gives purchasers sufficient time to sell their existing property and sort out their finances, explains property agents. Since the launch of the scheme, CapitaLand is said to have sold 50 units at d’Leedon and 30 units at The Interlace in a matter of days.

Leasing scheme

Adding a twist to the DPS is the “Experiential Leasing Scheme” offered by privately held property group TG Development. The scheme gives buyers the option of leasing the property for two years before deciding to buy it. TG launched the pilot scheme at its 76-unit freehold condominium project Lloyd SixtyFive on June 16.

TG Development released 20 one-bedroom and one-bedroom-plus-study units at Lloyd SixtyFive under the Experiential Leasing Scheme on June 16

Under the scheme, the buyer will sign a two-year lease with TG Development and pay an “advance rental”, which is equivalent to a 10% down payment plus a 2.5% refundable deposit on the purchase price of the unit. The buyer will then be able to move in when the project is completed in 1H2017.

If the buyer decides to buy the unit, TG Development will refund the full 10% advance rental and 2.5% deposit less any deductions to reinstate the property or due to any breaches of the tenancy. If the buyer decides not to buy the property, only the 2.5% deposit will be refunded less any deductions to reinstate the property or due to any breaches of the tenancy at the end of the lease period, typical of most rental property lease agreements. For instance, based on an average selling price of $1.62 million, or $2,760 psf for a one-bedroom unit at Lloyd SixtyFive, a 10% advance rental translates into $162,000, or $6,750 a month, while a 2.5% refundable deposit works out to $40,500.

“The scheme allows buyers to enjoy the experience of living in the unit first and the luxury of time to decide whether they want to buy the unit,” says a TG Development spokesperson. “If they decide to buy it, they have enough time to sort out their finances during the two-year lease period. They don’t need to get a home loan until then.”

For a start, only one-third of the units at Lloyd SixtyFive, or about 20 one-bedroom and one-bedroom-plus-study units, will be offered under this scheme. TG Development, however, says that it is open to offering its remaining 46 units for the second phase of this scheme if there is demand. Prior to the launch of the scheme, TG had sold 10 units.

Overcoming ABSD and QC

As TG Development is a privately held Singapore- based company with Singaporean shareholders, it does not have to pay extension charges under the conditions of the Qualifying Certificate (QC), which requires developments with even one foreign shareholder or director to sell all units within a residential development within two years of completion. Failure to do so will mean paying extension charges of 8% on the land cost for the first year, 16% for the second and 24% for the third. However, the extension charges will be prorated based on the proportion of unsold units.

Besides, Lloyd SixtyFive is only scheduled to be completed in 1H2017. Meanwhile, the clock is ticking towards the end of the QC period for OUE Twin Peaks, which was completed in February 2015; and CapitaLand’s d’Leedon, which obtained its Temporary Occupation Permit in October 2014. As for The Interlace, it was completed in 4Q2013, which means it has already been subjected to extension charges under the QC.

Development and redevelopment sites purchased from December 2011 were subjected to a 10% additional buyer’s stamp duty if the developer did not complete construction and sell all the units in the project within five years. From January 2013, the ABSD was revised to 15%. The ABSD is more punitive than the QC as it is based on the land cost, regardless of the number of unsold units.

Assuming a developer paid $500 million for a development site. A 15% ABSD to be paid at the end of the five-year remission period amounts to $75 million. This is regardless of whether the developer has just one unsold unit or 50. “If there is only one unsold unit worth $5 million, it doesn’t make financial sense for the developer to pay $75 million in ABSD,” says Alan Cheong, head of research at Savills Singapore. Therefore, developers have been trying to pare the unsold inventory in their portfolio before the ABSD deadline. Alternatively, some may explore the option of forming a privately held investment company to buy the remaining units by the deadline, he adds.

DPS — before and now

There is less wriggle room for developers where the ABSD is concerned. However, the DPS seems to work for projects that are subjected to QC extension charges. The DPS was abolished in September 2009 in the first in a series of property cooling measures. However, at the time, the scheme was offered by developers mainly for projects under construction.

In its current reincarnation, the DPS is offered for projects that have already obtained a TOP and Certificate of Statutory Completion, which means the developments are no longer under the Controller of Housing. Any scheme offered by the developer after CSC — whether sales rebate, furnishing package or DPS — is considered a resale or private treaty deal between the developer and the buyers, explains Savills’ Cheong.

Developers are therefore motivated to complete their projects. One example is listed property group United Industrial Corp (UIC), which has three projects under construction: the 429-unit Alex Residences in Alexandra, the 106-unit Pollen & Bleu on Farrer Drive and the 109-unit Mon Jervois on Jervois Road. Alex Residences is scheduled to be completed in February 2017, while Mon Jervois is expected to be completed next June and Pollen & Blue at the end of next year.

UIC is working towards completing its Mon Jervois development and then looking at offering buyers more flexible sales terms

As the sites were purchased under the Government Land Sales programme, they are not subjected to QC conditions. However, the developer will be subjected to a 10% ABSD at the end of the five-year ABSD remission period if there are unsold units in the three projects.

“Our priority is to push for completion — TOP and CSC — so buyers will be able to see and appreciate the completed project before committing to a purchase,” says Michael Ng, group general manager of UIC. Mon Jervois still has 50 unsold units, while 90 units are still available at Pollen & Bleu. At Alex Residences, there are still 171 unsold units. “After TOP, CSC and legal completion, we will have the flexibility of providing more flexible sales terms such as those that are now in the market,” adds Ng.

Teambuild Land, the property development arm of Teambuild Construction, is also looking at a similar strategy and pushing for the completion of its 58-unit Singa Hills development on Jalan Singa, off Bedok Reservoir Road. So far, there are 28 unsold units in the project, which is subjected to both QC extension charges and a 15% ABSD. For now, the developer is offering a 10% discount for selected units. “Once we have obtained legal completion, we will explore various means to sell the remaining units, including some form of DPS,” says Richie Chew, executive director at Teambuild Land.

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